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Why Healthcare Payers Can’t Afford Automation

Using technology to automate business processes is a good thing that enhances operational efficiency and drive cost savings, right?  Not always.  Today’s healthcare marketplace offers a counter-intuitive case in point.

As the Affordable Care Act continues to transform the healthcare market, a growing number of payer organizations – particularly the regional Blues – are finding that maintaining and upgrading automated claims processing applications is becoming prohibitively expensive. In fact, decreasing automation and increasing investment in personnel can in many cases produce a more cost-efficient outcome.

In recent years, healthcare payers have poured significant resources into developing software applications that automate the process of reviewing and processing claims for reimbursement of healthcare costs – in some cases achieving auto-adjudication rates approaching 90 percent.  At the time, this approach made sense, and these highly customized legacy systems were proven to be effective in relatively static environments.

Today, of course, it’s a different ballgame: healthcare reform is driving fundamental and ongoing changes in regulatory and data reporting requirements. This means the myriad applications involved in auto-adjudication require constant upgrades, which not only drives costs but piles layer upon layer of additional complexity on to already highly customized and heavily engineered systems.

In this context, the commitment to maintaining high levels of automation results in higher costs and inflexible systems, making it more difficult to meet mandate deadlines.

Top-performing insurers are turning to an alternative approach comprising these key elements:

  • Optimize claims review processes. As a result of multiple mergers, acquisitions and organizational consolidations over the years, most health insurers today maintain multiple processes around how to review and close a claim for reimbursement. While this hodgepodge of multiple processes has long been recognized as a thorny problem, the imperative to address it has been lacking until now – and now it has arrived with a vengeance, in the form of fundamental and rapid changes in regulatory and reporting requirements. Put differently, kicking the can down the road is no longer an option. The foundation of any operational strategy today must include a focus rationalizing and standardizing claims processing guidelines.
  • Clearly define compliance ownership roles and responsibilities between the payer organization and third-party providers. We’re seeing payers increasingly shift compliance burden to their providers. While providers will continue to assume overall accountability for compliance, the responsibility for making changes to systems to ensure compliance is currently a gray area, and therefore represents a significant potential risk.
  • Reduce customization of the claims processing environment. Rather than over-committing to customizing technology and making automation an end goal, payers should focus on the total cost of processing a claim. As such, instead of aiming to achieve 90 percent auto-adjudication rates (and ignoring the cost of frequent upgrades and maintenance), a smarter approach is to take a larger view of the cost of claims services. Such an approach is characterized by out-of-the-box programs and limited customization and auto-adjudication rates of 60 percent to 70 percent. While this strategy requires an increased investment in personnel, the resulting systems are lower in total cost. More importantly, they’re significantly more flexible and agile.
  • Optimize investment in additional people through a combination of international and domestic delivery teams. International resources can be used to leverage labor arbitrage for rules-based tasks and functions. Domestic resources, meanwhile, can support more complex claims types requiring discretionary actions or knowledge-based claims processing, such as, for example, locating overpayments in a specialty pharmaceutical claim. Because discretionary functions require Third Party Administrator certification status and involve liability obligations, offshoring such roles is typically not viable either from a staffing or regulatory standpoint.   ISG has observed that the rural sourcing model can be ideally suited to address this need, and sees a significant opportunity both for providers in this space as well as for economically depressed rural areas.

We’ll soon be posting a follow-up that looks more closely at the rural sourcing model.

About the author

Al Denis brings considerable experience in information technology (IT) to ISG clients in his role as Director, Healthcare Practice Lead for ISG. In his career, Al has delivered technical, sourcing and business services to Blue Cross and Blue Shield of North Carolina, Anthem, Kaiser Permanente, Sentara Health Systems, CareFirst, University of Pennsylvania Health System and Wellpoint. Al is among ISG's most accomplished experts in the evaluation of complex global sourcing alternatives, including solution evaluation and supplier management.